President Trump January 23 highlighted his plans to lower the corporate tax rate for corporations that make products in the US and penalize those that don't. "My message to every business in the world is very simple — come make your product in America and we will give you among the lowest taxes of any nation on Earth. We're bringing them down very substantially, even from the original Trump tax cuts," he said in a video address at the Davos World Economic Forum. "But if you don't make your product in America, which is your prerogative, then very simply you will have to pay a tariff, differing amounts but a tariff, which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt."

During Q&A, the President said of the corporate tax rate, "We're going to bring it down to 15%, if you make your product in the USA. So, that's going to create a tremendous buzz. We're also probably going back to the one-year deduction … We're going to go back to that when we do the renewal of the Trump Tax Plan."

And while the focus for months has been on how Republicans can pass a GOP-only reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, now President Trump said he may seek to work with Democrats on tax cut extensions or suggested he would at least dare them to oppose a bill preventing a huge tax increase. "To further unleash our economy, our majorities in the House and Senate, which we also took along with the presidency, are going to pass the largest tax cut in American history, including massive tax cuts for workers and family and big tax cuts for domestic producers and manufacturers," he said. "And we're working with the Democrats on getting an extension of the original Trump tax cuts, as you probably know by just reading any paper."

He further said, "We have to get Democrats to approve it. But, you know, if the Democrats didn't approve it, I don't know how they can survive with about a 45% tax increase, because that what it would be. And so, I think they're going to be. We've been working along with them pretty well," President Trump said. "I think it's very hard for a political group to say, 'Let's charge people 45% more.' So, I think we're in good shape. But we're actually doing a reduction for business and small businesses, where you're going to bring it down to 15%, which is really something."

Republicans have long planned to use reconciliation for a tax bill to allow GOP-only simple majority passage in the 53-47 Senate. Democrats would be expected to push for ending TCJA provisions for high-income individuals, Child Tax Credit changes, a more stringent approach to some international provisions, and other changes that Republicans would likely oppose. Still, the GOP plan for reconciliation, including one bill or two and any revenue offsets, remains unsettled. Some Republicans say a current policy baseline means tax cut extensions don't need to be offset, others want new revenue, and Trump continues to mention tariffs. A story in the January 22 Wall Street Journal said, "Trump privately told Senate Republicans at a Jan. 8 lunch on Capitol Hill that he is convinced tariffs can raise around $1 trillion in revenue … "

However, a January 22 New York Times story, "How the Debt Could Hamstring Trump's Agenda," said "many Republicans are hesitant to rely on tariffs as a way to pay the government's bills, even if Mr. Trump intends to use them to do so." The report cited House Ways & Means Chairman Jason Smith (R-MO) as repeating prior comments that even though the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) "won't give us credit" for tariff revenues against the cost of a tax bill, "what we have to do as lawmakers is look at the complete fiscal health of the nation." The story also reported the deficit concerns of Ways & Means member Dave Schweikert (R-AZ), who said investors were starting to think twice about lending to the US and warned of the potential effects on the economy. "This ain't a game," Schweikert said. "This needs to temper both how we approach policy and how we communicate that policy."

Government funding/debt limit — There were no indications that Republicans had reached out to Democrats on a tax bill, but it is widely anticipated that Democratic support may be needed for a bill to fund the government beyond March 14 and an approach to the debt limit, given that sufficient Republican support may not materialize. A "four corners" bipartisan, bicameral meeting of appropriations leaders took place on January 23 to begin discussions for government funding legislation due by March 14.

And Politico reported January 22, "House and Senate GOP leaders are internally debating a possible deal with Democrats that would include government funding, California wildfire aid, a debt-limit hike and border security money … conversations around the potential larger deal have heated up in recent days as GOP leaders try to figure out how to lift the approaching debt ceiling while also advancing a massive, party-line reconciliation bill and avoiding a March 15 government shutdown."

SALT — Meetings have been the focus for much of the first week of the new Trump administration. President Trump, who is said to want to eventually meet with each House Republican member, met January 22 with Reps. Mike Lawler (R-NY), Don Bacon (R-NE), and Brian Fitzpatrick (R-PA), Republicans who won seats in districts that VP Harris won in the presidential contest and were therefore key in delivering the House GOP majority, which sits at 218-215 with two vacancies. (In the last Congress, there were 17 Republicans who won in Biden-won districts.) Lawler said the President has been clear about "the need to lift the cap on SALT," in light of the $10,000 state and local deduction cap enacted in the 2017 TCJA. He mentioned his bill to increase the deduction to $100,000 for individuals and $200,000 for couples but didn't specify what dollar figure could win agreement.

Also this week, House committee chairs led a discussion with members to discuss some of the revenue ideas that have been floated for a reconciliation bill, including work requirements for Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), and Medicaid, and other health changes, according to various press reports. Punchbowl News said some revenue ideas presented by House committee chairs overlap with ideas described by the Budget Committee in recent weeks, "although a good amount don't," and mentioned proposals like addressing student loans and tonnage duties for ships.

Bills of interest introduced this week include:

January 20

• H.R. 558, to provide that certain tips shall not be subject to income taxes for a period of five years, Rep. Don Bacon (R-NE)
• H.R. 560, to exclude compensation from secondary employment for certain taxpayers from the income tax and payroll taxes, Rep. Bacon
• H.R. 561, to establish a deduction for certain overtime payments, Rep. Bacon

January 21

• S. 173, to increase excise taxes on fuel used by private jets, Senators Ed Markey (D-MA) and Bernie Sanders (I-VT)
• S. 175, to rescind the unobligated balances of amounts appropriated for Internal Revenue Service enhancements and use such funding for an External Revenue Service, Senator Bernie Moreno (R-OH)
• H.R. 574, on full and immediate expensing, to permanently allow a tax deduction at the time an investment in qualified property is made, House Budget Committee Chairman Jodey Arrington (R-TX) and several other Ways & Means Republicans

January 22

• S. 187, to permanently allow a tax deduction at the time an investment in qualified property is made, Senator James Lankford (R-OK) and several Finance Committee Republicans
• S. 194, to provide for an election to expense certain qualified sound recording costs otherwise chargeable to capital account, Senator Marsha Blackburn (R-TN)
• H.R. 600, to prohibit the use of funds to seek membership in the World Health Organization or to provide assessed or voluntary contributions to the WHO, Chairman Arrington
• H.R. 601, to reduce the rate of tax on estates, gifts, and GSTs, Chairman Arrington
• H.R. 609, to include net investment income tax imposed in the Federal Hospital Insurance Trust Fund and to modify the net investment income tax, Rep. Lloyd Doggett (D-TX)
• H.R. 610, reforms with respect to Medicare supplemental health insurance policies, Rep. Doggett
• H.R. 616, to double the dollar limitation for the energy efficient home improvement credit for heat pumps, heat pump water heaters, biomass stoves, and boilers, Rep. Josh Gottheimer (D-NJ)

Additionally, Ways & Means Tax Subcommittee Chairman Mike Kelly (R-PA) and Ranking Member Mike Thompson (D-CA) announced introduction of the Short Line Railroad Tax Credit Modernization Act, to "make it easier to keep local rail lines operating and in good repair and improve commerce in communities nationwide." Senator Steve Daines (R-MT), Majority Leader John Thune (R-SD) and others were set to introduce a bill to make permanent the Section 199A 20% passthrough deduction. And Punchbowl News reported on Senator Lankford's plans to introduce a bill to allow intangible drilling costs in the adjusted financial statement income of oil & gas companies for purposes of the corporate alternative minimum tax (CAMT).

Global tax — Ways & Means Chairman Smith and all other Committee Republicans have reintroduced the Defending American Jobs and Investment Act (H.R. 591), which would:

• Require Treasury to identify extraterritorial taxes and discriminatory taxes enacted by foreign countries that affect US businesses, such as the UTPR
• Increase tax rates on the US income of investors and corporations in the countries by 5 points each year for four years, with tax rates elevated by 20 percentage points while the taxes are in effect

In reporting on the bill introduction, Tax Notes reported bill cosponsor Rep. Kevin Hern (R-OK) as saying there's little incentive for the US to go back to the OECD negotiation table because of Pillar 2's rules that allow foreign countries to have taxing authority over some US business profits and the fact that the US GILTI regime is not a qualified IIR under Pillar 2 rules. "If the [OECD inclusive framework] want[s] to make GILTI pillar 2-compliant, then we could talk to them about it," Hern said, adding that even with a Democrat-controlled Congress, the Biden administration was unable to pass Pillar 2 legislation.

An EY Alert, "US issues Executive Order on BEPS 2.0," is available here.

The Senate is in session next week, but the House is out, and Republicans are holding a retreat in Doral, FL, that is to include an address by President Trump. The Senate may vote on the nomination of Scott Bessent to be Treasury Secretary. Questions for the record have been posted here.

On Wednesday, January 29 (10:00 a.m.), the Senate Finance Committee is set to hold a hearing to consider the nomination of Robert F. Kennedy, Jr., to be Health and Human Services Secretary.

Today, January 24 (12:00 p.m.) is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments."